Facebook, Google, and the Economics of Abundance

There's an article in The New York Times that captures and propels an idea that started floating around the Internet, at about the same time Facebook started floating around the investment pages: Facebook owes everyone some cash. The tortured logic behind the argument goes something like this:

You put information into Facebook

Facebook uses that information to make money

Therefore, Facebook should give you some of that money

There is no way that this idea is going to go any further than the chattering online hoards. Even a don't-read-and-click-OK understanding of the Facebook terms and conditions would provide you with the understanding that Facebook has the right to use the information that you freely give it as it sees fit. Certainly, there are some challenges and issues that surround the use of this data. But, overall, it is well within Facebook's rights to use the content you provide to make money for itself. If you don't like it, stop providing the data.

But, the more concerning issue for me is that this stance, especially as it is described in The New York Times column, represents a strong desire to put an old economic model of network value onto a fundamentally new platform and a lack of understanding of how a world shaped by generating value from scarcity has shifted to one driven by abundance.

Buy Low, Sell Low. Just a Lot More

Economies are built upon scarcity. High supplies and low demand mean low prices; low supplies and high demand mean high prices. This is true for everything from luxury cars to orange juice to - critically for the media world - time and access. In the traditional economic model of media, the core commodity was time-on-the-network. There are only 24 hours in a day and about three of so-called prime time (when the audience is the largest). To capitalize on that time, however, the owners of the technology that created that time (i.e., built radio towers and laid cables and had studios and so on) needed to find people able to create content that people wanted to watch. So, Larry David and Jerry Seinfeld create the sitcom "Seinfeld," which is purchased by NBC. David and Seinfeld should be paid for the content they create because it is of great value and capitalizes on the scarce and finite resource of time.

How, then, is this different from the picture of my cats that I posted on Facebook (and that Facebook now shows ads next to)? Two reasons. The first is that my photo is no "Soup Nazi" episode. The other is that the nature of what Facebook provides is not a destination for content, like NBC (the TV station). Facebook is a destination that enables you to create your own network.

That is, Facebook doesn't care about great content. It's following the idea first set out by Google, which went against the portal dogma of the day when it first launched and refused to create any content. This stood in stark contrast to Yahoo, for example, which always has believed that it should produce and own content. In fact, Yahoo appears ready to double down on this plan, with its new chief commenting that will continue trying to build the network through a focus on covering big events like the Olympics and the U.S. elections.

Similarly, Google is building a new layer on top of (or more appropriately underneath) its dedication to creating links between other people's content through its approach to social media. I know: everyone is on Google+ but nobody goes to it. I believe that traffic to Google+ is largely irrelevant right now. What matters is that people are clicking on those little +1 buttons that are appearing around the web. People with Google+ accounts can click on those when they find content they like. That click is added to the Google index and the next time a friend of the clicker does a search, the clicked-upon page rises to the top. Google+ has a nearly-transparent layer on top of the web now that is going to make search - the core money maker for the company - better.

I imagine someone will eventually complain that they're not getting any cash from Google for clicking on that +1 button as well. Here we aren't creating content nearly as much as we are improving Google's search engine. It's as though Google has found a way to crowdsource the extremely labor-intensive task of finding good web pages to everyone on the planet. You never go to your Google+ page? Who cares? Google has already gotten an enormous amount of value on you and it doesn't even have to worry about paying to drive traffic to its site.

Google and Facebook have embraced a new network economic model based on abundance. This is why Google wants +1 buttons everywhere and Facebook wants you to believe that the new norm is to share everything and forget about privacy. Neither one of these companies owes you any money because they have already provided you with plenty of time and access from the vast storehouses of these resources that they have created.

We live in a world of plenty. That's good. But the way to profit in this world is going to be different from the old. You can succeed in this world, just like Facebook and Google have, but not by insisting that they regress back to an old way of being.

ABOUT THE AUTHOR

Gary Stein is SVP, strategy and planning in iCrossing's San Francisco office. He has been working in marketing for more than a decade. Gary lives in San Francisco with his family. Follow him on Twitter: @garyst3in. The opinions expressed in Gary's columns are his alone.

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